M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Wednesday, February 26, 2014

The Three Amigos

I just finished reading the three amici filed in support Delaware's petition for writ of cert.  The three letters were written by a group of law firms, the Business Rountable, and NASDAQ OMX GROUP.   

Of the three, the law firm memo is the most strident and, I think, given the source, the most puzzling.  The basic gist of the law firm's amicus brief is that there is just way too much public access of the courts in this country and that it's about time that the Supreme Court did something about it! ("The Court should grant certiorari in this case to restore the Fist Amendment right of access to its properly narrow scope.")  Lawyers, in particular, litigators who make their living in the courts you would think would be among the most sensitive to the importance of information and precedent  to facilitate the work of advising clients and structuring transactions.  But here, they appear to be going 'all in' to ask the Supreme Court to limit the qualified right of access under the First Amendment solely to criminal trials. 

What would the world be like if, as the Business Roundtable brief suggests, "Chancery Court  arbitration is likely to become an increasingly preferred method of dispute resoultion"? Well, they start, but don't finish, to answer to their own question: "[A]s [deal lawyers] counsel their clients to specify Chancery Court arbitration in their agreements, we can expect that it will be an increasinly utilized tool for dispute resolution."  

And...then this is my fear...someone will wake up in ten years time and ask a question, "What's a MAC?" You'll have to dust off an old case book to see what it was once.  But, you won't really know.  And when your clients ask you,"Will a court uphold this deal structure, what's my risk?" You won't really know.  How could you?  All or most of the disputes that are the fodder of the Delaware corporate common law will have gone dark.  Although dispute resolution will not have stopped, law generation through the courts will have.  

That's what's at stake here. It's frustrating to me that so many involved haven't looked down the road to recognize that.  

Or, let's think about it this way.  The chancellors will continue to hear cases and the 'law' as applied by the Chancellors in arbitration will continue to evolve.  However, it won't be precedential and diffusion of knowledge will be limited.  Rather than being able to look up recent decisions - or better read The Chancery Daily in your inbox every morning - practitioners will be forced to rely on meetings with 'lawyers in the know' and relationships to understand the current state of the law.  While that's not an impossible condition, it raises the relative costs of knowing the "Delaware corporate law".  Over time, lawyers who might have previously advised clients to incorporate in Delaware might find the costs of learning the Delaware law to be too expensive.  Why not just rely on California law instead?  The cases are all online and if something happens, we will learn about it cheaply.  That's the long-term threat to Delaware that may well stem from 'success' with Chancery arbitration. 

Anyway, like I said, it's frustrating. 

There are a couple of points in the amici briefs that are worth commenting on.  First, the 'experience and logic test' is all about framing.  The Third Circuit (and the District Court) looked at the proceeding and reached the conclusion that the publicly-funded finding of fact by judges who normally hear this kind of dispute had enough attributes of a civil trial that it was in fact a civil trial. Just because you call something and arbitration doesn't make it an arbitration.  

The Third Circuit felt the procedure looked like a trial and then applied the experience and logic test to civil trials.  The amici say, "No, no, this is an arbitration, so no openness with the experience and logic test."  Where you starts dictates where you end to a certain degree when applying the test.

Second, the amici extoll the virtues of arbitration because it is so much more efficient that the normal judicial system.  Think about that for a second.  The Delaware Secretary of State describes the state's judicial system in the following way: 

The Delaware Court of Chancery is a specialized court of equity with specific jurisdiction over corporate disputes. Without juries, and with only five expert jurists selected through a bipartisan, merit-based selection process, the Court of Chancery is flexible, responsive, focused and efficient. 

Apparently, according to the amici, it's not really all that efficient nevermind what the Secretary of State says.  

Honestly, I find that hard to stomach.  Hello!  Men's Wearhouse filed a suit in the Delaware Chancery Court on Monday. Yesterday - Tuesday - it got a hearing on a motion to expedite.  Please.  Enough with the 'Delaware courts aren't efficient' nonsense.

Okay, let's say for arguments sake the amici are right and Delaware is not an efficient place to resolve disputes. Why would arbitration organized by the same inefficient courts be any better?  This is a bad argument. 

Finally -- not really finally, but I am getting tired you really don't want to read all this -- the amici argue that arbitration is valuable because the entire process is confidential.  'Sure, the Delaware Chancery Court has procedures for confidential treatment of sensitive materials, but just between us, the Delaware rules for confidential treatment suck. Right, amIright?'

Seriously.  Does the Chancery Court seriously believe that its own rules with respect to confidential treatment of trade secrets are inadequate?  I find that hard to believe.  

Anyway. I'm going to finish off this post with a uncategorical statement with which you are free to disagree:

The US capital markets benefit and are strengthed when stockholders of publicly-traded corporations have access to information about the way in which their investments are managed and the law that governs them.  Period. Full stop.

-bjmq 

 

 

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